Yesterday figures were released that the Toronto rental vacancy rate was at 1.5%. This translates to a very tight supply of apartments for prospective renters. Not since the early 90’s has there been such short supply (and in the early 80’s it was Air Supply — Sorry bad joke).
You may remember several weeks ago in my communication the experience on leasing out my client’s home and the frenzy that ensued on the first evening. 12 Groups of people came to view the home and 6 parties came with cheques in hand.
It is a good time to consider an investment property! You have to sift through the offerings and work the numbers. There are good deals to be had for those that are patient.
Click to download a spreadsheet that helps in analysing investment properties. Insert your specific data in the yellow highlighted fields and insert mortgage rates on the second tab. It is a great tool but should be used for illustrative purposes only.
7 reason to plunge into the property game
Written by: Paul Kondakos, BA, LL.B, MBA – Professional Real Estate Investor
If talk about a housing correction are keeping you out of the property investment game, here are seven top reasons to overcome those fears. As real estate veteran Paul Kondakos, president of RealtyHub.ca, points out your time to buy an income-producing property may be now.
- Mortgage Rates – Canadian bond yields continue to sit at historic lows, as a result it is not uncommon to secure multi-unit residential financing with interest rates as low as 3 – 4%. While Canada has enjoyed a prolonged period of historically low rates, the window of opportunity is finite as interest rates have nowhere to go but up. (Window of opportunity – up to 18 months)
- Vacancy Rates – CMHC has reported that vacancy rates have been trending downward across most major urban centres across Canada with rates sitting as low as 1 to 2% in many areas. In addition, recent changes to mortgage rules in Canada have made it more difficult to qualify and thus will force many to become renters instead of buyers, thus putting even more downward pressure on vacancy rates in the coming months. (Window of opportunity – up to 36 months and beyond)
- The Spread – This is the difference between your mortgage rate and your cap rate and determines the strength of your cash flow. Even with the market cap compression taking place in the larger urban centers like Toronto and Vancouver, smaller urban centers still offer healthy cap rates in the 7-8% range (you need to do your research or have a great JV partner). Thus, with mortgage rates as low as 3-4% you can achieve a very healthy spread of 3-4%. (Window of opportunity – up to 18 months)
- Home Equity – With the Canadian real estate market on fire, home owners have enjoyed a significant increase of the equity in their homes. Equity can be unlocked through a mortgage re-finance or HELOC (Homeowner’s Equity Line of Credit) which can be used to purchase an income property. The added bonus is that the interest costs of the re-finance or HELOC can be written off on your taxes. (Window of Opportunity – up to 18 months)
- CMHC Insurance – Placing CMHC insurance on a multi-unit property reduces the mortgage rate by between 1/2% to 1% over the life of the mortgage and represents significant savings. CMHC is approaching its $600 billion government-imposed limit on issuing mortgage default insurance. While the government may raise the limit, this is just another reason to buy now and take advantage of CMHC mortgage insurance while it is readily available. (Window of opportunity – up to 36 and beyond)
- Time – In real estate investing, time is your best friend as it facilitates appreciation, mortgage pay-down and cash flow. The longer you own an income property, the greater the ROI. (Window of Opportunity – becomes smaller the longer you wait)
- Alternatives – With interest rates at historic lows, bank accounts, savings bonds and any other interest bearing investment vehicle offer little return on your capital. The stock market has shown incredible volatility with negligible returns over the past decade and shows little signs of improving any time soon. REITs offer a respectable return on your investment, but investing directly into the asset itself (income property) offers an even greater return on your investment.
Housing affordability eroding, RBC says (Vancouver Skewing the numbers?)
CBC News – 27/08/2012 9:17:12 PM
Higher home prices coupled with slightly higher mortgage rates to make home ownership slightly less affordable over the past three months, Canada’s largest bank said Monday.
Housing got less affordable in the bungalow and two-storey home segment, but remained flat in the condominium market, Royal Bank of Canada said in its latest quarterly Housing Trends And Affordability report.
It was the second straight quarter that affordability eroded. Affordability actually improved for the latter part of 2011, the bank calculated.
The bank’s report attempts to move beyond the topline housing price in calculating how affordable housing is. RBC’s calculations also consider factors like mortgage rates and income levels in order to determine if it’s getting easier or harder for Canadians to own a home.
The Canadian Real Estate Association has repeatedly warned that its national averages have been skewed by the active Vancouver market. And that city is factoring into RBC’s calculations too.
“The erosion in the single-family home categories in the past two quarters pushed the levels of these measures further above their long-term averages in Canada,” the bank said. “However, national figures are exaggerated by extremely poor affordability in the Vancouver-area market.”
Vancouver remains the least affordable city in the country in which to buy a home. Indeed, the bank figures affordability in the Vancouver area has now dropped “to levels that stood very close to the worst on record.”
Indeed, Vancouver is skewing the numbers for the rest of the province. In Victoria, for example, the bank figures the percentage of income needed to carry the costs of a mortgage at market prices is almost half the share in Vancouver for some housing types.
The bank says the Toronto market has seen a pullback in affordability, but not to the same level as Vancouver.
“While homeownership costs in Canada’s most populous city take on larger shares of household income currently than it has been the case on average historically, these shares remained well below the peaks at the time of the housing bubble of the late 1980s,” the bank said.
Across Ontario as a whole, “owning a home took a slightly larger share of households’ income in the second quarter, thereby extending the modest rising trends since 2009,” the bank noted.
Recently I was able to help a young couple acquire their first home. A fantastic feeling! This past Saturday they shared two wonderful pieces of news.
The first, and most important, is that they are now expecting their first child and their timing in finding a great home was perfect. A big congratulations!!!!.
Secondly, they made it through a 5 Stage selection process and will be featured on HGTV’s “Income Property” – The episode to look for is #87. It has not filmed yet but they are in the renovation stage of their basement apartment. One of the deciding factors on purchasing the home was the income potential of a basement apartment.
For those of you not familiar with the program, the lower level space will be setup to deliver max return/rent to the owners.
Next week I should be able to provide the August sales results. I expect it to be light volume with slightly higher sale prices.
I am already starting to notice more listings/inventory entering into the mix and it’s about a 50/50 split on homes be offered for sale with offer dates (trying to get multiple offers).
I also expect it to be another strong fall market!
Next week BACK TO SCHOOL!
Thank you and have a great long weekend,